Alternate Payee form of payment revisited

[Guest PGH.ERISA]

In looking at the archived threads on this site, I found some threads dealing with the time and form of payment to the alternate payee, and there was some disagreement as to whether a plan could force an alternate payee to take only one form of payment even in cases where other forms were available to a participant and would not violate any rules relating to distributions to alternate payees. My employer's hybrid DB plan requires all alternate payees to receive a lump sum even though participants have annuity options available. I realize that it is in the employer's interest to get rid of alternate payees, but can anyone cite a specific provision of the law that would forbid a plan from requiring all alternate payees to take a lump sum?

[GMK]

Thanks for the question.

I thought Alternate Payees have the same distribution options as the employee.

But I'm not an expert in this, so I look forward to seeing the answer.

[QDROphile]

Some tidbits for you to put together:

414(p)(3)(A), and no fair claiming you can draft the plan to provide no other benefits to alternate payees.

414(p)(4)(A)(iii)

414(p)(5)

ERISA 206(d)(3)(J); the tax regulations go both ways, more often speaking about alternate payees as distinct from beneficiaries.

If nothing else, you can conclude that a plan that is subject to the annuity rules cannot provide that an alternate payee will receive only a lump sum no matter what.

[Guest PGH.ERISA]

I finally heard back from the IRS, and was told that under 414(p)(4)(A)(iii), the alternate payee cannot be limited to a lump sum when the participant has other options. That is also consistent with a DOL publication on QDROs:

2-15: What effect does an order that a plan administrator has determined to be a QDRO have on the administration of the plan?

The plan administrator must act in accordance with the provisions of the QDRO as if it were a part of the plan. In particular, if, under a plan, a participant has the right to elect the form in which benefits will be paid, and the QDRO gives the alternate payee that right, the plan administrator must permit the alternate payee to exercise that right under the circumstances and in accordance with the terms that would apply to the participant, as if the alternate payee were the participant.

Reference: ERISA §§ 206(d)(3)(A) , 206(d)(3)(E)(i) (III); IRC §§ 401(a)(13)(B), 414(p)(4)(A)(iii)

[Guest PGH.ERISA]

Section 3-8 of the same DOL publication is equally blunt:

"A plan may by its own terms provide alternate payees with additional types or forms of benefit, or options, not otherwise provided to participants, such as a lump-sum payment option, but the plan cannot prevent a QDRO from assigning to an alternate payee any type or form of benefit, or option, provided generally under the plan to the participant.

Reference: ERISA §§ 206(d)(3)(A) , 206(d)(3)(D) , 206(d)(3)(E)(i) (III); IRC §§ 401(a)(9), 401(a)(13)(B), 414(p)(3), 414(p)(4)(A)(iii)"